Question

In the activity, you will need to find out about economic fluctuations in the US and for the country you have chosen. Find information (and provide links) that indicate where the US and your selected country are in the business cycle. Provide specific information that supports this characterization. In addition, describe any policies that have been undertaken to stabilize the economy in the US and in your selected country. Once again, please provide information that explains these policy actions. How does this relate to the current state of the economy in your country? Explain and interpret the situation and what you expect the economy to do over the next year or so in your economy.

Answer 1

The country I have chosen for this exercise is India.

US economy:-

The US economy, despite being the largest in terms of size, in monetary terms, has seen one of the longest expansion in its economy till fiscal year 2019. After the great recession due to an unprecedented financial crisis of 2008-09, the economy took longer than expected to recover from the lows. However, after formation of new government with President Trump, the economic growth in the country picked up due to favorable economic policies, especially cut in corporate and income taxes, which led the economy to high of $21 trillion. It was expected to grow above 3% this year as well, but the Covid-19 pandemic has plunged the world economy into an unprecedented recession and the country is expected to see a negative GDP growth of 4.5%.

The government has provided an expansionary fiscal and monetary policy worth more than $4 trillion to revive aggregate demand, GDP growth, and employment level in the economy.

Indian economy:-

Indian economy at $3 trillion is the third largest economy in Asia and fifth largest in the world. Since 1990s, average annual GDP growth rate has been above 6% which has helped the economy to more than quadruple its size. After the great recession, the growth rate remained stagnant at around 4% to 5% till year 2014. However, after arrival of Modi as the Prime Minister, coupled with low oil prices, the country saw a quick rebound, and the annual growth rate reached above 7% in the following years. Demonetization of its currencies and credit issues in the banking sector had slowed down the economic growth 2017 onwards. As the economy was about to take off this year, the pandemic has forced the country to see a recession after 40 years.

The government has brought expansionary fiscal and monetary policies worth 10% of the GDP of the country to revive economic growth, employment and aggregate demand.

Both the countries were going through economic boom, however, the pandemic has forced these countries to see a recession.